Commissioner Of Wealth Tax vs O.P. Tandon And Ors.
1991 Latest Caselaw 775 Del

JUDGMENT

Arun Kumar, J.

(1) By this judgment we propose to answer the following question referred to this Court for its opinion by the revenue under Section 27(1) of the Wealth-tax Act (hereinafter referred to as the Act):- "WHETHERon the facts and in the circumstances of the case, the Tribunal erred in holding that Rule Ibb of the Wealth-tax Rules could be applied for the valuation of properties No. 177, 178 and 179, Rajpur Road, Dehradun and NO. 23, Darya Ganj Delhi. for the assessment year 1978-79, although the said rule. was enacted from 1-4-1979:"

(2) The assesseds are owners of properties bearing No. 177, 178 and 179,Rajpur Road Deharadun and No 23, Darya Ganj, Delhi. The Commissioner of Wealth-fax (A) directed the Income Tax Officer to value the said propertises in accordance with rule Ibb of the Wealth-tax Rules. The revenue challenged the said direction on the ground that rule Ibb which was enacted with effect from 1-4-1979, could not be applied to assessment year 1978-79. The Tribunal re)ected this contention holding that Rule Ibb was of a procedural nature and, therefore, would apply to an assement which was pending at the time When the rule came into effect.

(3) Before proceeding further it may be worthwhile to notice the relevant provisions of the Wealth-tax Act and the Rules as in force at the relevant time. "SECTIONS.Charge of wealth-tax. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule 1." "SECTION 7. Value of assets, how to be determined. (1) Subject to the provisions of sub-sect-on (2), the value of any asset, other than cash, for the purposes of this Act shall be its value as on the valuation date determined in the manner laid down in Schedule III. (2.) The value of a house belonging to the assessed and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date, may, at the option of the assessed, be taken to be the value determined in the manner laid down in Schedule Iii as on the valuation date next following the date on which he became the owner of the house or the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later: Provided that where more than one house be longing to the aasessee is exdusively vised by him 625 for residential purposes, the provisions of this subsection shall apply only in respect of one of such houses which the assessed may, at Its option, specify in this behalf in the return of net wealth. Explanation : For the purposes of this sub-section :- (i) Where the house has been constructed by the assessed, he shall be deemed to have beconic the owner thereof on the date on which the construction of such house was completed; (ii) "house" ineludes a part of a house being an independent residential Unit." "SECTION 46. Power to make rules. (1) The Board may, by notification in the Official Gazette, make rules for carrying out the purposes of this Act. (2) In particular, and without prejudice to the generally of the foregoing power, rules made under this section may provide for -- (a) the manner in which the market value of any asset may be determined. (b) the form in which returns under this Act shall be made and the manner in which they shall be verified; (c) the form in which appeals and applications under this Act may be made, and the manner in which they shall be verified; (cc) the circumstances in which, the conditions subject to which, and the manner in which, the Deputy Commissioner (Appeals) or the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or which he was not allowed to produce before the Assessing Officer; (d) the form of any notice of demand under This Act (dd) the procedure to be followed in calculating interest payable by assesseds or interest payable by 626 the Government to assesseds under any provision of this Act, including the rounding off of the period for which such interest is to be calculated in cases where such period includes a fraction of a month, and specifying the circumstances in which and the extent to which petty amounts of interest payable by assesseds may be ignored; (e) the areas within which Valuation Officers may exercise jurisdiction; (ee) the manner in which and the conditions subject to which Valuation Officers, overseers, surveyors and assessors may exercise their powers under subsetcion (1) of section 38A; (f) any other matter which has to be, or may be, prescribed for the purposes of this Act." "RULE1BB:- (1) For the purpopses of sub-section (1) of section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely :- (a) the amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the fraction 100/8; and (b)the amount arrived at by multiplying the net maintainable rent in respect of the remaining .part of the house, if any, by the fraction 10019; Provided that in relation 'to a house which is built on leasehold land, th's sub-rule shall have effect as if for the fraction 10018 in clause (a) or as the case may be, the fraction 100/9 in clause (b), the fractions 10019 and 100/10, respectively, had been substituted Explanation:-For the purpose of this sub-rule a house shall be deemed to be manly used for residential purposes if the built-up floor area thereof . Used for residential purposes is not less than sixtysix and two-third per cent of its total built-up floor area."

(4) It will be seen from the above referred provisions of the Act that Section 3 is the charging section laying down the liablity to pay the Wealth-tax in respect of net wealth of an assessed specified in the said section. Section. 7, as its very heading suggests, lays down the procedure for determining the value of the assets for the purposes of levy of tax. Sub-section (1) of Section 7 starts with the words "subject to any rules made in this behalf" which shows that the provisions of Section 7 have been made subject to rules that may be framed in this behalf.

(5) Section 46 contains the rule making power and authorises the Central Board of Direct Taxes to make rules for carrying out the purposes of the Act. The Rules to be framed under the said rule making power are intended to provide for the manner in which the market value of any asset may be determined, the form in which returns under the Act shall be made, the form in which appeals and applications under the Act are to be made etc. etc. Thus Section 46 provides for the various procedural aspects for fulfillment and compliance of the provisions of the Act.

(6) The question of law referred by the Tribunal for opinion of this Court revolves round the applicability of rule Ibb to assessment for a perioid prior to coming into force of the said Rule. Rule Ibb was brought about through a notification published in the Official Gazette dated 30th March, 1979. The notification specifically provides that the said rule comes into force w.e.f. 1-4-1979. The assessment year evolved in the present proceedings is 1978-79 and since the assessment with respect to the said assessment year was still pending when the said rule came into force, the assesseds sought to apply it for valuing their aforesaid assets. Obviously the method of valuation contained in the said rule to the advantage of the assesseds in the present case. According to the assesseds the rule is procedural in nature as it only contains the procedure to be followed for purposes of valuation of assets and, therefore, has a retrospective application. It applies to all assessments pending at the time the rule came into force. On the contrary the revenue wants to confine the applicability of Rule Ibb to assessment years falling after the said rule came into force. It is submitted that the rule ultimately affects the tax liablility of an assessed and, therefore, is substantive in character. It cannot not have retrospective application. It will aply only to assessments pertaining to assessment years after the rule came into force.

(7) Counsel for the revenue has relied on certaain passages in the textbooks by Maxwell &G. P. Singh on Satutory Insperpretation which give the principles to determine the retrospectivity of statutory provisions, besides referring to certain decisions, though strictly not on the point in issue. He has also argued that the charging section is obviously a substantive provision of the statute-section 3 in the present case. Section 7 laying down the procedure for valuation of assets, is the machinary section and as such is an adjunct to the charging section and not anindepedent provision. The two sections are interconnected and cannot be considered independent. In fact Section 7 is part of the substantive provision. The moment Section 7 is held to be part of substantive provision, the argument of retrospectivity disappears. It has further been contefaded on behalf of the revenue that if Rule Ibb is held to be procedural and consequently retrospective in its operation, it will lead to certain anomalous situations such as : with respect to the same assessed and same property where file assessment has been finalised prior to 1-4-1979 the value of the property will be one and for the year for which the assessment could not be finalised, prior to enforcement of the said rule the value will be different. Another such situation could be with respect to the same property, with different assesses out of whom assessment for the same year for certain assesses might have been finalised prior to enforcement of the said rule while for some it may .still be pending. The applicability of the rule will make the assessment different for different assesseds qua the same property and qua the same financial year.

(8) Counsel for the assesseds has laid great stress on the point that section 7 talks of procedure to be followed for valuation of assets and as such the said section is procedural or is machinary section as it has been referred to by the Suppreme Court in Standard Mills Co. Ltd. vs. The Commissioner of Wealth-tax, Bombay, 63 Itr 471.(1) The Supreme Court has observed in 'the said judgment that "Section 7 falls in Chapter It which deals with the charge of Wealth-tax and assets subject tq such charge. It is intended to provide a machinary for the deteimination of the value of assets". Again in C.W.T. vs. Maharaj Kumar Kamal Singh, 146 Itr 202(2) it has been observed by the Supreme Court at page 202 "Section 7 is important which provides the method how the value is to be assessed". It has further been submitted that section 7 itself is subject to any rules made in this behalf and a reference to Rule Ibb will show that it only contains procedure for valuation of assets. Therefore, rule Ibb having been framed in pursuance of the rule making power under section 46 of the Act (which talks of rules for manner and procedure to comply with the provisions of 'the Act) is only procedural. The provision thus being procedural, is retrospective in its application and the assesseds are entitled to have their assets valued as per the procedure contained in the said rule.

(9) Counsel for the assesseds has invited our attention to certain decisions insupport of his contention. First in line is the judgment of a Division Bench of the Gujarat High Court reported as C.W.T. vs. Shri Kasturbhai Mayabhai, 164 Itr 107. (3) This decision contains a detailed conslideration of all the points involved. It has been held that the provisions of rule Ibb dealing with the determination of the market value of a house on the valuation date. is procedural in character and the provision operates retrospectively. While discussing the various aspects it has been observed that in order to determine the net wealth of an assessed, each asset has to be separately valued in accordance with section 7(1) of the Wealth-tax Act 1957 read with rule IBB. Section 7(1) is a machinery section and is subject to rules. It talks of procedure to determine value of assets. Rules are to be framed under section 16(2) of the Act which m.ust relate to the manner in which the market value of any asset may be determined. Therefore, the rule making authority can lay down the method or mode of determining the market value of an asset. When a rule sets out the method or formula for determining the market value of any particular asset, it can only be considered to be procedural and not substantive. Rule Ibb lays down the formula for determining the market value of a house used wholly or mainly for residence. It lias not the effect of imparing any vested right or creating any new obligation. The avowed purpose of the rule is to offer to an assessed a method of valuation of his asset which would help curtail avoidable litigation and bring about uniformity and certainty in the matter of valuation of such an asset. If the intention of the rule making authority in introducing rule Ibb was to evolve a method of valuation which would be beneficial and, therefore, acceptable to the assessed with a view to early disposal of cases relating to the asset in question it would be reasonable to infer that the rule-making authority desired to clear up pending cases and not merely deal with future cases with the aid of this rule. The introduction of this rule may also obviate the need to pet the asset valued by a recognised valuer from time to time. The assessed is not obliged to accept this valuation if he thinks that the market value of his asset would be less than the value derived by the Usb of this formulla. Similarly, in cases of the type referred to in sub-rule: (5) of rule Ibb, the revenue may refuse to abide by the said formula of the rule on the ground that it is not practicable to employ the method. Therefore, rule Ibb merely indicates a method or formula for determining the value of a house used wholly or mainly for residence and can be said to be purely procedural. Rule Ibb is not couched in language which would ex facie indicate that the rule-making authority desired that the rule should apply retrospectively. It would be necessary the make a specific mention that the rule is intended to apply retrospectivity only if it engrafts a rule of substantive law. If the rule or rules franked are purely procedural in nature it is not necessary turn the rule-making authority to state that they should apply retrospectively. Therefore, merely because rule Ibb does not say in so many words that it is intended to apply retrospectively, it cannot make any difference once it is found that it is purely procedural in character.

(10) The notification amending the Wealth-tax Rules does not state that it shall come into effect from any particular assessment year. In tax matters, the law to be applied is the law in force in the relevant assessment year unless otherwise stated or implied.

(11) The mere statement in the notification that the rules incorporated by the Wealth-tax (Amendment) Rules, 1979, shall come into effect from April 1, 1979, is not decisive of the fact that the rules were not intended to be retrospective in nature. They had to be brought on the statute book either at once or with effect from a dale decided upon by the rule- making authority but if the rule introduced by the amendment is found to be procedural in nature, it must operate resropectively and the mere fact that it was given effect to from April 1, 1979, will not clinch the issue.

(12) SUB-SECTION (1) of section 7 opens with the words "subject to any rules made in this behalf" which were added by the Wealth-tax (Amendment) Act 1964, with effect from April 1, 1965. Section 46(2) empowers the Board to make roles providing for the manner in which the market value of any asset may bedetermined. The word "manner" used in clause (a) of sub-section (2) of section 46 would denote the mode or method to befollowed for ascertaining the market value of the concerned asset. It is in exercise of this power that rule Ibb came to be inserted in the Rules by the Wealth-tax (Amendment) Rules, 1979. By this rule, the method or formulla for determining the value of the asset, that is, a house which is wholly or mainly used for residential purposes, is stated. The rule, therefore, is intended to carry out the purpose and object of section 7(1) of the Act', namely, an estimate of the price of the asset if sold in the open market on the valuation date.

(13) The Court was at pains to note that the Central Board of Direct Taxes had constituted a committee for laying down proper guidelines to enable speedy disposal of cases in which questions relating to the valuation of immoveable properties, etc., aforesaid for decision. The committee submitted its import drawing up guidelines for the valuation of residential properties. Pursuant thereto, rule Ibb came to be introduced in the Rules providing a formula for the determination of the fair market value of a house used wholly or mainly for the purpose of residence. It became necessary for the Board to provide a formula turn determining the market value of a house in order to speed up the disposal of cases involving questions of valuation of such an asset. By providing a uniform formula applicable to all Such cases falling under rule Ibb, the Board desired to remove the uncertainties prevailing in regard to the valuation of such assets which would help reduce litigation and secure early disposal of cases. If this is the avowed purpose behind the introduction of the rule, can it be said that it was not intended to apply to pending cases ? We have made a detailed reference to this decision as we feel that it lays down the correct position in law.

(14) Regarding reference to principles of statutory interpretation, it was observed: "THEgeneral rule of interpretation is that a substantive law is intended to be prospective unless a contrary intention is manifest from the language of the statute or arises by necessary implication, ft is well-settled that courts will refuse to place a construction giving retrospective effect if such construction is likely to impair existing rights and/or obligation. It is, however, open to the Legislature to give retrospective effect to a law by use of express words manifesting such an intention. That part, a statute which takes away or impairs any vested right or creates new obligation must be construed not to have been inended to apply retrospectively. But, as observed by R.S. Wright J, in Re Athlumney (1898) 2 Qb 547 at p. 552: "If the enactment is expressed in language which is fairly capable of either interpretation, it would to be construed. as prospective only."

(15) On the question of statutory interpretation the Supreme Court observed in Govinddas & Ors. Vs. I.T.O. etc., 103 Itr 123.(4) "IT is a well-settled rule of interpretation that unless the terms of a statute expressly so provide of necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liabilty otherwise than as regards matters of procedure. If the enactment is expressly in language which is fairly capable of either interpretation, it ought to be construed) as prospective only."

(16) It allows that the rule of construction depends upon the nature of statutory provision. If the law affects vested rights, interest and/or obligations it is substantive. If it touches matters of procedure only. it is adjudicative. In the case of law which is substantive, the presumption is that it ia not entitled to be retrospective unless such presumption is displaced by express language by the legislature or by necessary implication. In the case of law which is procedural, the presumption is in favor of the retrospectivity.

(17) The counsel for the assesses further cited C.W.T. vs. Laxmipat Singhania. 111 Itr 272,(5) which is a judgment of the Allahabad High Court. In the said case the question of retrospectivity of Rules 1C and Id introduced in the Rules by the Wealth-tax (Amendment) Rules 1967 by a notification dated 6th October 1967 was under consideration. These rules were sought to be applied retrospectively by the revenue on the plea that they were merely procedural in nature and did not effect the substantive rights/liabilities of the assessed. It was held that the said two rules prescribe a formula for determining the market value of the unquoted shares which was relevant and since that merely indicated the method of valuation, they could be retarded as rules of evidence of procedure and not as substantive law. The said rules were thus applied even to pending assessments relating to assessment years prior to the date of coming into force of the said rules.

(18) On the same lines is the judgment of the Bombay High Court in Kusumben D. Mahadevia vs. N. C. Upadhya, 124 Itr 799(6).

 (19) C.W.T. vs. Vidyavathi Kapur, 150 Itr 319(7) involves the same question as in the case in hand before us. It was observed by the Kamataka High Court :    "THEdispute in respect of both the questions relates to the applicability of rule IBB. The Tribunal has held that it is a procedural rule and, therefore, it may be given effect to even in respect of pending matters. There is no dispute and indeed it cannot be disputed that rule Ibb is procedural in nature. That being the position, we fail to see any question of law arising out of the order of the Tribunal, since it is always not disputed that the rules of procedure can be called) into and in respect of pending matters "  

 (20) Similar is the view taken by the Madhya Pradesh High Court in C.W.T. vs. Lachmandas Bhatia, 163 Itr 586(8). The Calcutta High Court in Manjushree Biswas vs. C.W.T., 171 Itr 345(9) has also taken the same view.   

 (21) The later judgment of the Gujrat High Court in C.WT. vs. Niranfan Naroltam. 173 Itr 693, (10) dealing with subsection (4) of section 7 of the Wealth-tax Act also takss a similar view on a similar controversy.   

 (22) Regarding Section 7 of the Act being adjunct to the charging section i.e. Section 3. we have been referred to Commissioner of Income Tax . vs. B. C. Srinivasa Setty, 128 Itr 294(11). In this case the Supreme Court has observed that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not entitled to fall within the charging section.   

(23) In view of the clear provisions of section 7 and rule Ibb it is obvious that Section 7 as well as rule Ibb are merely procedural. They are meant to be anaid to the charging section i.e., section 3. Together they may be an integral code. But it does not follow that through this indirect process what is specifically stated to be a procedural provision in the statute will become substantive. The provision which is substantive will remain substantive and what is procedural will remain procedural. The two can still harmoniously stay. As already noticed, rule Ibb has been framed in pursuance of the powers conferred by section 46 of the Act. Section 46 only caters to the manner and the procedure and as such rule Ibb cannot be anything but procedural. It is equally settled that rules cannot go beyond the statute and they have to be in consonance with the power under which the same have been framed. No authority is needed for this proposition. Still we may refer to a judgment of this court in SharbatiDevi Jhalani vs. C.W.T. 159 Itr 549(12).

(24) In C.W.T. vs. Maharaja Kumar Kamal Singh, 146 Itr 202, the Supreme Court has emphasised that section 7of the Act only relates to estimation of the market value of the asset and as such it is only a machinery provision. On this aspect of the matter the- Andhra Pradesh High Court has in C.W.T. vs. P. N. Rao, 134 Itr 640,(13) vividly brought out the distinction and independance of the two provisions contained in Section 3 and Section 7 of the Act. It has been held that Section 3 declares the liability of the assessed to pay the Wealth-tax on his "net wealth" while section 7 merely provides the machinery for the purpose of ascertaining the "net wealth" by valuing the assets composing the wealth. There is a distinction between liability to pay tax and assessment and collection of tax. The machinery revision of section 7 cannot be interpreted in such a way as to restrict the scope of section 3, which is the charging section. Thus there appears to be no scope for the argument that Section 7 being an adjunct to section 3, it itself becomes a substantive provision. It is equally incorrect to say that the rules envisaged under section 7 also acquire the same status so as to make all these provisions substantive and. therefore, prospective in operation.

(25) As noticed earlier, the counsel for the revenue has drawn our attention to certain passages from Maxwell on Interpretation of Statutes and Principles of Statutory Interpretation by G. P. Singh. There can be no dispute about the legal position as spelled out in these Text books. Therefore, we have not chosen to refer to or quote the passages referred before us. It will really depend on the nature of the statutory provision and it will have to be found from the provision itself whether it ia prospective or retrospective. The ertire background to which we have made reference which led to rule Ibb being framed, the provision under which it was framed and the nature of the rule itself leaves no manner of doubt in our mind that the provision is purely procedural Therefore, it has to be held that it is retrospecrive and it will apply to all assessments which are pending on the date the rule came info force.

(26) Counsel for the revenue relied on Hukam Chand etc. vs. Union of n lndia, .(14) In this case the Supreme Court points out the difference between subordinate legislation and the statute laws and observes that a subordinate law making body is bound by the terms of its delegated or derived authority and that courts of law, as a general rule, will not give effect to the rules, thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfillled. It was also noticed in the said judgment that unlike Sovereign Legislature which has power to enact laws on the retrospective operation, authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. This observation, to our mind, rather supports the view that we have taken about rule Ibb in the present case. Rule Ibb has been framed in pursuance of the power conferred by the statute under section 46. Section 46(2) confers the power to frame rule to deal with the manner in which market value of any asset may be determined and the procedure regarding various steps required to-be taken inconnection with the provisions of the statute. Therefore, rule Ibb cannot be anything but a manner of determination of the market value of an asset.

(27) Counsel for the assesseds has referred to 1961 Calcutta 560 which is acase regarding amendment of law relating, to procedure for dealing with criminal trials. The law is not in doubt that amended law relating; to procedure operates retrospectively. But it only means that pending cases although instituted under the old Act but still pending are governed by the new procedure under the amended law. It does not mean that the part of the old procedure already applied and concluded before the amendment came into force, becomes bad or can be re-opened under the new procedure after the amendment. That wlll be not merely making it retrospective but going a step further to make ex post facto the procedure legal when applied and concluded, illegal by subsequent law. No court will permit such a consequence unless of course the Statute expressly or by compelling implication, says so. Thus, where the amendment is only of procedure, even pending cases are governed by the amended law of procedure, but only in respect of those stages of procedure that remain to be applied after the amendment comes into force.

(28) It is also significant to note that if rule Ibb was intended to be applied only to future assessments, there was nothing to prevent the framers of the rule to say so. The said rule was framed to streamline the procedure and to do away with the uncertainty which was prevailing in different procedures for valuation of assets being followed by different officers. When the object was such it is difficult to say that the rule would not apply to pending assessments. This also answers the apprehension of the counsel for the revenue that the application of rule Ibb with retrospective effect will lead to anomalous results. If aprovision is introduced for achieving a larger objective, the mere fact that in some cases such anomalies may arise, will not detract from the well meaning intention of the provision. We would not like to stand in the way and thwart the object sought to be achieved by the rule.

(29) None of the authorities cited before us on behalf of the counsel for the revenue in supoort of his contention that rule Ibb is prospective in its operation, is directly on the point. These authorities are in relation to different provisions of the Income Tax Act or the Wealth-tax Act. Therefore, we do nut consider it worthwhile to discuss in detail any of these authorities. However, since they have been cited before us we will only make anote of them. They are--Thakur Gopal Singh vs. C.W.T., 99 Itr 354,(15) C.W.T. vs. H. H. Maharaja Mayurdhawaj Singhji 136 Itr 279; (16) S.V.T. v;. Balbhadradas Bangur, 148 Itr 149; (17) Prithvi Singh vs. Additional C. W. T. 157 Itr 193; (18) Sanghi Motors vs. Union of India, 187 Ftr 703; (19) & Escorts Ltd. vs. Union of India, 189 Itr 81(21). We have already referred to various decisions which support the contention advanced on behalf of the assesseds and which are directly on the point and with which we are Hi fill agreement.

(30) We accordingly hold that rule Ibb lays down the procedure for valuation of assets and is as such purely procedure It follows that it has retrospective application It applies to all the proceedings pending on the date when the rule was brought inte force. Our answer to the question posed before us is that there was no error on the part of the Tribunal in holding that rule Ibb of the Wealth-tax Rules could be applied for the valuation of properities No. 177,178 and 179, Rajpur Road, Dehradun and 23 Darya Ganj, Delhi for the assessment years prior to 1-4-1979 when the said rule was enforced. The reference is answered accordingly.

(31) There will be no ordets as to costs.